There are several types of the Forex charts that are used by the currency market traders. Perhaps, the most popular among them is the Japanese candlestick chart, which offers a lot of information about the price, which, at the same time, is easily understandable and can be used to analyze the chart patterns. Other chart types include: OHLC bars (which are not too different from the candlesticks but are visually less informative), chart lines, and
Japanese candlesticks
It is a way of representing the price movement of a security in a given period of time. A candlestick is made up of a real body, an upper shadow and a lower shadow (wick). The upper and lower shadows indicate the highest and lowest price respectively. In an uptrend, the top and bottom end of the real body will represent the closing and opening price respectively. On the other hand, in a downtrend, the top and bottom end of the real body will represent the opening and closing price respectively. A bullish candle is represented by a white colored body, while a bearish candle is represented by a black colored body. A candle chart enables easy visual identification of the prevailing trend.
OHLC bars
An OHLC bar is made up of four price elements namely, open (O), high (H), low (L) and close (C). Structurally, it consists of a vertical line with two dashes on either side of it. The dash on the left side of the vertical bar represents the opening price. Likewise, the dash on the right side of the vertical bar indicates the closing price. The highest and the lowest price in a given time period is represented by the highest and the lowest points of the vertical bar. An OHLC bar enables easy understanding of the conviction of the buyers and sellers. However, pattern identification is difficult with OHLC bars.
Line chart
It is the most basic form of representing the price movement of a security. A line chart is created by connecting the price data, over a given period of time, using straight lines. Usually, the closing price data series corresponding to a fixed time period is used to create the chart. A line chart indicates the direction of price movement over a given period of time. However, it is difficult to perform technical analysis with line chart.
It is a unique way of representing the price movement of a security without giving consideration to the time lapsed. A point and figure chart is made up of a number of columns with stacked âXâs and âOâs. The letter âXâ refers to a rise in price, while the letter âOâ indicates a fall in price. The quantum of price movement required for the addition of an âXâ or âOâ in the chart is referred to as the box size. If the box size is set at three, then a four point rise in the price of an asset will result in the inclusion of âXâ in the chart. If the previous letter in the column is âXâ, then the new âXâ is added above it. If not, a new column indicating a trend reversal is started. Similarly, a four point fall in the price of an asset will result in the inclusion of âOâ in the chart. Support and resistance levels can be identified precisely using the point and figure charts. However, gaps and island reversals cannot be spotted.
Here are the examples of all the four types:
I prefer to trade using the Japanese candlestick charts, sometimes I also look at P&F charts but that happens quite rarely. And how about you?
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